Boston, MA -- (ReleaseWire) -- 10/11/2012 -- Core Views Recent data suggest economic activity will continue to moderate in coming quarters. We believe that uncertainties over unemployment in the manufacturing sector and corporate earnings will prompt households and businesses to cut back on spending and investment, resulting in overall weak domestic demand growth over the coming months. We expect a moderation in Vietnam's real GDP growth from 5.9% in 2011 to 5.2% in 2012. Credit conditions continue to remain tight despite the State Bank of Vietnam (SBV)'s 200 basis points (bps) of rate cuts since March. We believe that high lending rates will continue to keep demand-pull inflationary pressures in check over the coming months and we see another 200bps of rate cuts by the SBV, bringing the policy rate from 13.00% at present to 11.00% by the end of the year. The Vietnamese government's plan to slash corporate income tax for small- and medium-sized enterprises by 30% and defer VAT payments for six months is expected to place significant pressure on the government's finances. We are forecasting budget deficits of 4.1% and 4.8 of GDP in 2012 and 2013 respectively. Major Forecast Changes We have downgraded our real GDP growth forecast from 5.8% to 5.2% for 2012. We see increasing evidence that total public expenditure will exceed the government's allocated budget this year, resulting in budget deficits of 4.1% and 4.8 of GDP in 2012 and 2013 respectively. Key Risks To Outlook Downside Growth Risks From Rising Commodity Prices: Should commodity prices witness a strong rebound in 2012, we could see the central bank adopting a more hawkish stance on monetary policy. Delays in normalising interest rates would present significant downside risks to economic growth. Further Deterioration In External Demand: Despite multiple devaluations since late 2009, Vietnam's trade deficit has witnessed a steady improvement. However, should we fail to see a sustained improvement in the trade balance, we would not be surprised to see the Vietnamese dong coming under further selling pressures.
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